Double digit drops in rates bills possible if QLDC swaps rating system

by Kim Bowden - Jan 26, 2024

A lobby group thinks the Queenstown Lakes council could shake up the way it levies rates to make it more equitable and just as lucrative.

New analysis by Common Ground Aotearoa shows the average household in the district would be significantly better off under a land value rating system.

The proposed system, which links rates to a property’s land value, would encourage more housing supply, as well as result in a more equitable allocation of rates, according to Common Ground co-founder Jesse Richardson.

The researcher has previously crunched the numbers for Wellington, and last year turned to Queenstown Lakes to do the same.

By his calculations, the median residential property in the district would see a 28.6 percent decrease in rates under the system, with no loss to council revenue.

Meanwhile owners of residential property worth less than one-million dollars would see a median rates decrease of 45.1 percent.

The rating system used by the council is based on capital value, which means rates are charged on both the value of land and whatever improvements have been made on it.

Proponents of a land value rating system argue a downside of the capital value rating system, which is the status quo for local government around New Zealand, is property owners pay lower council rates the less efficiently they use their land.

Mr Richardson thinks a switch in Queenstown Lakes could incentivise putting empty land to use, as the median vacant property would see a rates increase of 20.9 percent using the land value approach based on his calculations.

He says his analysis identifies $5 billion of empty or under-used land in the Queenstown Lakes District.

"What we know from numerous examples of this policy being implemented is that it will reduce the rates burden on homeowners and businesses and organically grow the local economy.

"In a nutshell, land value rates are about investing in the Queenstown Lakes.”

Professor Arthur Grimes, of the Victoria University of Wellington's School of Government, in a media release provided to Crux by Common Ground Aotearoa, backs the proposed system.

“A switch from a capital value base to a land value base for rates enhances both efficiency and equity," the professor says.

"It is clear that councils should adopt land value as the basis for their rates."

Mr Richardson says he has contacted Queenstown Lakes councillors, and is hoping to present his research at a workshop.

Upper Clutha-Wānaka councillor Cody Tucker has shown an initial interest in the idea, and is also quoted in the media release.

"Our district is facing unusually high and compounding interest rate hikes for some years ahead and we will still struggle to deliver the much needed social infrastructure our communities deserve," the Hāwea-based councillor says.

"We have to be agile and think differently if we are to address this problem sincerely. Land value rates could be a key part in distributing the burden more equitably and help address some systemic issues.”

Kiwi councils do have the option of choosing between land value rating or capital value rating systems.

According to a report by business journalist Dileepa Fonseka published two years ago by Stuff, in 2007 47 percent of councils rated property based on land values, but by 2019 that had shrunk to 29 percent.

The figure comes from research done by Insight Economics for the Productivity Commission.

In the opinion piece, Mr Fonseka says, "As population numbers increase, and land values skyrocket, you might have expected more councils to move to a ratings system based on land values, if only as a way to encourage more apartments to be built".

He thinks "it is strange" more councils haven't considered making the switch, especially as "a capital rating system can actually leave the majority of ratepayers worse-off".

Mr Richardson says making the shift "certainly isn't too hard in the practical sense" but "can be hard in a political sense".

QLDC rates also include a number of potential fixed annual charges for services ranging from rubbish and recycling collection, to libraries, sports fields, and tourism promotion.

Plus, the council applies differentials to divvy up responsibility for rates revenue, which means, for example, rates levied on a commercial property will be different to those on a rural or residential one.

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